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Levy 5% GST on natural gas to reduce fertiliser subsidy
Finance minister Nirmala Sitharaman has said that the tax rate for five petroleum goods – crude oil, natural gas, petrol, diesel and aviation turbine fuel (ATF) – can be fixed under the Goods and Services Tax (GST) as soon as the states give their consent at a GST Council meeting. GST is a ‘single tax’ applied all over India with a set-off provision for tax paid on inputs. The Constitutional Amendment Act, 2016 on GST while providing for the inclusion of petroleum products under its ambit, had kept them ‘zero-rated’. These goods continue to attract central excise duty and state-level value-added tax (VAT).
When will the ‘zero-rated’ tag go? The Act has given the power to the GST Council to decide. Rate setting for natural gas under GST – a major input used in the manufacture of fertilisers – has been on the Council’s agenda ever since the tax regime was adopted on July 1, 2017, but a decision was deferred. Will the Council follow up on FM assurance at its next meeting?
Meanwhile, let us assess the cost of keeping natural gas zero-rated. At present, natural gas attracts ‘nil’ central excise duty on supplies to fertiliser plants and VAT varying from a high 24.5 percent in Andhra Pradesh to a low 5 percent in Rajasthan. This not only leads to wide variations in the price of natural gas supplied to plants from state to state but also has a cascading effect on its delivered cost.
The fertiliser industry gets nearly two-thirds of its natural gas requirement from imported liquefied natural gas (LNG). During October-December 2022, India paid around $35 per million British thermal units (mmBtu). After adding import duty of 2.75 percent (basic 2.5 percent and 10 percent social welfare surcharge), the cost of re-gasification and other charges such as terminal charges, vessel-related charges and port charges, the price rises to $37 per mmBtu. There are other additional costs such as charges for transportation of re-gasified LNG, marketing cost and marketing margins of around $ 2 per mmBtu. The price comes to $39 per mmBtu at the delivery point in a state. The share of imported LNG in total gas supply being two-thirds, its weight in price comes to $26.1 per mmBtu.
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